Strong Chrysler Earnings Help Fiat Turn Profit

Sergio Marchionne, right, the chief executive of both Chrysler and Fiat, shows Vice President Joseph R. Biden Jr. a Chrysler car at the Detroit auto show.

Carlos Osorio / Associated Press

By BILL VLASIC

January 29, 2014

DETROIT — The world’s newest auto giant on Wednesday chose a formal name, Fiat Chrysler Automobiles, and a borderless corporate structure that spans the Netherlands, Britain, Italy and the United States.

But even though the merger of Fiat and Chrysler is now complete, the company’s fourth-quarter earnings show how far it has to go to become a balanced and integrated automaker.

Chrysler, which has historically been the third-biggest American automaker after General Motors and Ford Motor, reported fourth-quarter net income of $1.62 billion.

The strong results were bolstered by a one-time $962 million tax benefit related to valuation allowances on deferred assets. Without the gain, Chrysler still earned a profit of $659 million, an increase of 74 percent over the $378 million it earned in the period a year earlier.

Fiat’s auto operations, which are based in Italy, fared less well in the quarter. It reported earnings of 252 million euros, or $345 million, excluding one-time items. But without the profit contributed from the Chrysler division, Fiat would have lost 235 million euros.

This was the last time that Fiat and Chrysler will report results separately, and the beginning of a fresh start for newly combined Fiat Chrysler Automobiles, or F.C.A.

In announcing details of the merger, the company’s chief executive, Sergio Marchionne, said it was ready to accelerate the integration of its disparate operations.

“Today we can say that we have succeeded in creating solid foundations for a global automaker with a mix of experience and know-how on a level with the best of our competitors,” Mr. Marchionne said.

Fiat gained control of Chrysler after the American company’s government bailout and bankruptcy in 2009, and later built its ownership stake to 58 percent.

This month, the Italian automaker took full ownership when it completed the purchase of a large minority stake in Chrysler held by a health care trust for retired union workers in the United States.

On Wednesday, Fiat’s board put the finishing touches on the combination of the two companies into what is now the seventh-biggest automaker in the world.

The old Fiat was absorbed by a new holding company, Fiat Chrysler Automobiles, which is organized as a corporation in the Netherlands and based in Britain for tax purposes. As expected, the shares in the new company will be listed on both the New York and Milan stock exchanges.

There are no plans to reduce workers or change operations at Chrysler’s old headquarters in Auburn Hills, Mich., or Fiat’s home base in Turin, Italy.

At the recent Detroit auto show, Mr. Marchionne said that the legal headquarters of the merged company was largely irrelevant given its far-flung operations and global scale.

“We live in a world where power travels and it doesn’t have a fixed address,” he said. “I live on an airplane.”

Melding Fiat and Chrysler has been Mr. Marchionne’s goal for five years, and he has so far managed to use Fiat’s technical expertise to improve Chrysler’s cars and manufacturing plants.

But for more than a year Fiat has been bogged down by weak economic conditions in its core European market. The merger now will allow the Fiat operations to tap into the cash generated by Chrysler’s healthy sales of trucks and sport utility vehicles in North America. Fiat also said that it would stop paying a dividend to preserve capital.

Analysts said the merger would streamline decisions that affect both sides of the company and result in better vehicles sold under its various brand names.

“The new company has the opportunity to move more quickly,” said Stephanie Brinley of the research firm IHS Automotive. “As one corporation, the same governance structures can be applied to all divisions, and priorities set in a more collaborative way.”

It is a somewhat unlikely marriage of an all-American automaker known for its rugged Ram pickups and Jeep sport utility vehicles with a European manufacturer known for its stylish Fiats, Alfa Romeos and Maseratis.

But Mr. Marchionne and his management team are making progress toward developing common vehicle platforms that can be used for multiple models sold in different regions.

Mr. Marchionne also hinted on Wednesday that Fiat Chrysler Automobiles could pursue an alliance or merger with an Asian auto company in the future.

“We remain totally open to any ways we can strengthen our competitive position in the marketplace,” he said.

The more immediate goal is to keep the profit flowing at Chrysler, while Fiat upgrades its product lineup in Europe and South America.

“Putting two weak companies together does not create one strong company,” Ms. Brinley said. “F.C.A. is really just beginning their work toward becoming a successful, sustainable and consistently profitable company.”